China industrial profits rise again as export factories outpace demand

China’s industrial profits rose 21.1% in May from a year earlier, but the pace slowed from April’s 24.7% and exposed a widening split between export factories and companies still wrestling with weak domestic demand. For January-May, profits at industrial firms above the official size threshold reached 3.14 trillion yuan, up 18.8% from a year earlier, as industrial output itself climbed 4.5% in May.

The National Bureau of Statistics of China’s figures show how concentrated the gains have become. Manufacturers of computers, communications and electronic equipment posted a 103.9% jump in profits in the January-May period and accounted for 43.1% of overall industrial profit growth. Non-ferrous metal ore mining and processing also surged, with profits up 93.9%. Equipment manufacturers kept double-digit growth in the first four months, rising 15.4% and contributing 5.4 percentage points to profit growth across major industrial firms.

That strength stood in sharp contrast with sectors tied more closely to household spending and the property slump. Automakers saw profits fall 19.8% in January-May, while furniture makers posted a 58.4% plunge. The gap highlights an economy still leaning on factories, commodity producers and overseas shipments rather than on a broad pickup in consumer demand at home.

ANZ strategist Zhaopeng Xing said upstream sectors and the computer industry drove the gains, while downstream manufacturing remained under pressure in line with the producer price index. That points to another reason profits have improved even as the wider economy remains soft: higher prices and stronger performance in selected industrial segments are doing more of the work than a rebound in final demand. Industrial profits had already risen 18.2% in the January-April period, after a 15.5% increase in the first quarter, and April’s 24.7% gain was the fastest since late 2023.

For U.S. manufacturers, the message is more complicated than a simple Chinese recovery. A China that keeps relying on export-oriented factories can extend price competition in global markets and keep trade tensions elevated, especially in electronics, machinery and other industrial goods. The backdrop is also less stable than the headline profit figures suggest, with uncertainty around the Iran conflict and the Strait of Hormuz adding another external risk to an already narrow growth base.